In The Money

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Friday, September 30, 2005

Quarter-end strength shows up

"The rung of a ladder was never meant to rest upon, but only to hold a man's foot long enough to enable him to put the other somewhat higher." - Thomas H. Huxley

NAND Chips: Remember Lowly Memory Chips? They're Back, Changing Industries The falling cost and rising capacity of a popular memory chip are triggering a shake-up in the global electronics market. The chip, perhaps best known from the memory cards in digital cameras, uses something called NAND flash memory to store data, songs, photos and lately video in a tiny sliver of silicon. Major advances in the chip's technology have giant electronics companies jockeying for position as suppliers of NAND chips are scrambling to protect other product lines from the competition. (Full Story) WSJ

Oil Output: Oil Output Will Peak, But When? A peak in global oil production is either upon us or comfortably decades away, depending on whom you ask. Experts on a panel discussion on the subject at the John S. Herold energy conference here this week agreed that daily global oil production, now about 85 million barrels a day, will indeed "peak" at some point. The question, of course, is when. (Full Story) BARRONS

Market Comments: Personal income and personal spending both came in below expectations this morning, due in part to the affects of Hurricane Katrina. Consumer sentiment also came in lower than expected.

Despite the subdued economic reports rolling in, the market was able to reverse yesterday's early losses, and finish with a solid accumulation day (large-range outside day). The SPX recaptured both the 20-day and 50-day overhead necktie, as well as closing above the key 1225 level. So count yesterday as Day 1 in a new rally attempt, but don't get too excited unless we see a confirmation rally sometime next week.

Thursday, September 29, 2005

SOTDs

My stocks of the day are:

True Religion (TRLG): despite the concerns about a retrenchment in consumer spending, TRLG is breaking back above its 50-day moving avereage on huge volume. Although I am highlighting the move, and applaud the strength, I will be looking to take profits on my position in the high teens.

And as for the thorn in my side, known as Hansens (HANS), that stock is also breaking back to its 50-day moving average on big volume. HANS was one of my high short-interest picks, and could benefit from additional short-covering if the market stays strong.

Turnaround Thursday?

The market has fully erased its morning losses. I always prefer a market that opens weak, and then strengthens throughout the day. So let's hope the market can build on its gains into the close.

Chips stocks and brokers are leading the pack, with retail and biotech stocks not far behind. Interenet stocks are also doing well (EBAY, GOOG, YHOO). Big pharma stocks are sucking wind, with the DRG currently in the red.

GDP report in-line

"You must have long-range goals to keep you from being frustrated by short-range failures." - Charles C. Noble

Morning News of Note:

FNM FRE: New Fannie Mae Violations Surface Accounting Flaws Include Possible Overvalued Assets, Insurance to Hide Losses Investigators combing through Fannie Mae's finances have found new accounting violations, including evidence that the company may have overvalued assets, underreported credit losses and misused tax credits, according to people close to or previously involved in the inquiries. Some people familiar with the examination said evidence also indicates the company may have bought so-called finite insurance policies to hide losses after they were incurred. (Full Story) WSJ

GE AEP: GE, Bechtel and AEP Plan 'Clean Coal' Plant General Electric Co., Bechtel Corp. and American Electric Power Co. are expected to announce today that they will move ahead with engineering and design of what would be the nation's first big coal-fired power plant to use cleaner-burning technology. Construction of the billion-dollar, 629-megawatt plant in Meigs County, Ohio, along the Ohio River, could start as early as next year. The plant, which would provide electricity for more than 600,000 homes, could be producing power by 2010. (Full Story) WSJ

PMTI ELOS: Aesthetic Lasers Look Good to Investors AS AMERICANS DEMAND MORE WEAPONS for the war on wrinkles, lasers that zap away unwanted body hair, acne scars, and spider veins are becoming big business. How big? Aesthetic laser procedures accounted for 2.2 million of the 11.8 million cosmetic procedures performed last year in the U.S. That was nearly a threefold jump since 2000, according to the American Society for Aesthetic Plastic Surgery (ASAPS). (Full Story) BARRONS

Market Comments: Final Q2 GDP growth came in at +3.3%, as expected. The question will be how much growth gets taken of Q3 from the twin hurricanes. Initial jobless claims also fell considerably, but again, the data may reflect pre-Katrina conditions.

PEP reported a great quarter this morning, and the stock is nearing a new high. Broker stocks area also strong again, and have been surprisingly resilient during this selloff. Energy mark-ups are still going on (think: energy), and it will be interesting to see if any quarter-end buying pressure will surface. Otherwise, the near-term trend looks down.

Wednesday, September 28, 2005

Another flat day

Today makes 4 days in a row where the SPX has closed within a point (1215-1216). That's quite a bit of churning. You could debate the implications of this, by my experience is that when the churning takes place below resistance levels, it is usually resolved to the downside. We shall see.

As for the internals, I think energy masked the strenght in the NYSE, while the Nasdaq posted 482 net decliners. New highs barely edged out new lows (+9). The CBOE put/call ratio was neutral most of the day. Oil rallied late to finish above $66, and the 10-year yield eased to 4.26%.

Chatter about market tops

"Whatever you can do, or dream you can...begin it; boldness has genius, power, and magic in it." - Johann Wolfgang Goethe

Morning News of Note:

DELL: Dell to Unveil New, Upscale Items Dell Inc. today is expected to announce plans to chase affluent consumer-electronics buyers with a new line of pricey home computers and a dedicated sales and service staff for these products, plus two new high-definition televisions. The moves by the Round Rock, Texas, computer maker comes as retailers Best Buy Co., CompUSA Inc. (owned by Mexico's Slim family) and Tweeter Home Entertainment Group Inc., are adding personal shoppers and custom-installation services to attract well-heeled buyers of home theaters and computer-based entertainment centers. (Full Story) WSJ

PFE: FDA Clears Use Of Lipitor to Lower Chance of Stroke The Food and Drug Administration approved Pfizer Inc.'s blockbuster drug Lipitor for use in lowering the chance of stroke in patients with Type 2 diabetes, or who are at risk for developing heart disease. Pfizer said the FDA has given the green light for Lipitor, a cholesterol-lowering drug, to be prescribed to lower the stroke risk rate in Type 2 diabetics who don't yet show any evidence of heart disease. (Full Story) WSJ

FFIV: Networking Stock F5 May Thrive Again INVESTORS ACCUSTOMED TO STELLAR RESULTS from F5 Networks lately appear to have doubts the company can keep it up. The stock of the networking company, which has outperformed that of giant Cisco Systems over the past two years, has lagged in 2005. Investors increasingly fear that rivals Cisco, Juniper Networks and others will cut into F5's growth. (Full Story) BARRONS

DNA: According to the USPTO website, a patent examiner has issued a non-final rejection of all 36 claims of patent #6,331,415 ("Cabilly"). This is a broad patent on antibody production under which DNA receives royalties on marketed antibodies through 2018. If Cabilly is overturned, DNA would receive antibody production royalties only under the "Boss" patent until 3/06. DNA has 2 months to respond to this '415 ruling. Whether or not the patent is overturned, CIBC expects a lengthy appeals process, during which DNA would continue to receive royalties.

Market Comments: The market opened higher this morning, after a stronger than expected durable goods report (+3.3% vs. +0.7% cons.). Oil is still hovering around $65, and the 10-year yield is at 4.30%.

Yersterday there was a lot of chatter that the strong moves in the consumer staple stocks (food, beverage, etc.) was an early indicator that the market was perceiving a slowdown in the economy, and possbily a market top. I think it's too early to make that call. One reason is that I have a little trouble believing the market has topped with short interest as high as it is now.

Tuesday, September 27, 2005

Lagging Nazz

The SPX and Dow were able to finish up today, while the Nazz closed down slightly for the day. The SPX has now closed essentially flat for 3 straight days. Volume was below yesterday's levels on the NYSE, and slightly higher on the Nasdaq.

PAYX beat estimates after the close, and also raised guidance. The stock broke to a new 52-week high after hours. Oil also closed lower on the day, just above $65, and the yield on the 10-year was unchanged at 4.29%.

Other than that, I would highlight ISRG, which bounced strongly off of its 50-day ma on a big spike in volume. Looks strong.

Crawling Back

The Dow and SPX have inched back into positive territory as of this post. The broker index (XBD) is the only sector with gains on the day, while chip stocks are still off by more than 1.0%.

Other groups are mixed, in terms of winners and losers. The put/call ratio is running at 0.82, and the VXO is slightly higher (12.47). I'd say it's a coin toss in terms of more buying and short covering into the close.

Lackluster market open

US Economy: Fed Gov Hoenig said US economy is in reasonably good shape; inflation high enough to get your attention; hurricanes could slowdown GDP 50bps; sees temporary drag on economy but rebound next yr; sees energy price reductions slower after storm; rising labor costs extremely important; need to be on alert to rising pressures

GOOG YHOO: Search Wars II: Google Calls Self Most Useful Engine In the latest salvo in the Web search-engine wars, Google Inc. says a recent upgrade allows it to search roughly three times as many Web pages as any other rival. Despite the claim, the Mountain View, Calif., company declined to disclose how many Web pages it can search, saying industry disagreement about how to measure that led it to abandon its practice of disclosing the exact number. (Full Story) WSJ

WMT: Digital-Photo Prices Hit a New Low Wal-Mart Sets Cost of Prints At 13 to 15 Cents per Shot; Comparing the Options In the latest round of price cutting in the digital-photo industry, Wal-Mart Stores Inc. is lowering the price of prints to 15 cents each, and to 13 cents at its members-only Sam's Club stores. The new 48-hour service, which applies to 4- by 6-inch copies, represents a new low price for digital-photo prints. It began in some locations last month and will be rolled out in every Wal-Mart and Sam's Club store by the end of October. Customers are required to bring their digital camera cards into the store and pick up their prints two days later. (Full Story) WSJ

SBUX: In a bid to boost sales in its largest international market, Starbucks Corp. is expanding its business in Japan beyond cafés and into convenience stores with a line of chilled coffee in plastic cups. The move gives the Seattle-based company a chance to grab a chunk of Japan's $10 billion market for coffee sold in cans, bottles or vending machines, rather than made-to-order at cafés.

Market Comments: Pretty much a lackluster open. Oil is still hovering a little above $65. Consumer confidence came in well below consensus (86.6 vs. 95.0 est.), which is not that surprising with all that has happened with the twin hurricanes. New homes sales were weaker than expected also.

Housing stocks and retailers are weak so far this morning, as the indexes just turned negative. It's still early, so let's see if some of that quarter-end buying pressure surfaces today.

Market Comments: Oil has moved back up into positive territory for the day. Stocks have given back much of their gains, and are just slighlty up on the day at this point. Energy stocks are leading (markups?), following by housing stocks. Biotechs are down on the day.

Rita Relief

"Genius may have its limitations, but stupidity is not thus handicapped." - Elbert Hubbard

Morning News of Note:

YHOO: Yahoo Enlists Finance Writers For Native Content Yahoo Inc. has hired a roster of popular authors to write financial columns for its Web site, marking one of the company's biggest moves into original content. The Internet company today will begin publishing columns about personal finance and investing by an array of writers, including such well-known names in the business press as Ben Stein, Robert Kiyosaki and Stephen Covey. The Sunnyvale, Calif., company has signed nine new columnists to write for its Yahoo Finance site and plans to hire as many as 30. (Full Story) WSJ

TWX DIS NWS VIA.B: Putting Cash to Work CARL ICAHN MAY BE ON TO SOMETHING with his effort to force Time Warner (ticker: TWX) to undertake a massive, $20 billion share-repurchase program and spin off its cable operations. Despite an enviable mix of assets and decent growth prospects, the entertainment industry's Big Four -- Walt Disney (DIS), News Corp. (NWS), Time Warner and Viacom (VIA) -- continue to frustrate investors. Shares of all four companies have declined this year. Since the market peak in 2000, their stock-market performance has ranged from awful (Time Warner) to merely disappointing (News Corp.). (Full Story) BARRONS

WiMAX: All Maxed Out? WHERE'S WIMAX? The high-speed wireless technology was billed as the cellular killer -- faster and cheaper than the cellular technology sold by vendors like Qualcomm (ticker: QCOM). But as cellular operators roll out "third-generation" networks, WiMAX is still trying to get out of the testing lab. (Full Story) BARRONS

WMT: Wal-Mart Stores-WMT sees September SSS up 2%-4%

Market Comments: The market opened higher this morning, on relief that the damage from Rita was not as bad as many had feared. Oil is trading lower so far, dropping below $64. Existing homes sales also came in better-than-expected, which is lifting the housing stocks (+1.2%). Retailers are also seeing some strength in early trading.

The week is quarter end, so we could see some window dressing by portfolio managers. Energy stocks seem like a good place to look, as well as recent leaders like GOOG.

Friday, September 23, 2005

Lovely Rita...Not

Oil Bubble: Cheaper Oil May Not Sink Energy Stocks FOR NERVOUS NELLIES WORRIED ABOUT how to invest in energy if the latest oil price bubble bursts, the past may be prologue. In 2001, a recession helped crude prices drop 26%. And while the economy today is still growing at about 3% a year, the sharply higher costs of running a car, heating a home and delivering goods could crimp consumer spending. (Full Story) BARRONS

VZ: Verizon Introduces Fiber Optic TV Service Verizon Communications began taking orders yesterday for its new television service, which the company hopes will draw business away from cable and satellite providers. As part of a national strategy, about 9,000 Verizon customers in Keller, Tex., 30 miles west of Dallas, will be the first to subscribe to the television service, called FiOS TV. (Full Story) NY Times

MSFT: Battling Google, Microsoft Changes How It Builds Software Delay in New Windows Version Drove Giant to Develop Simpler, Flexible Product Engineers Get Trip to 'Bug Jail' Jim Allchin, a senior Microsoft Corp. executive, walked into Bill Gates's office here one day in July last year to deliver a bombshell about the next generation of Microsoft Windows. "It's not going to work," Mr. Allchin says he told the Microsoft chairman. The new version, code-named Longhorn, was so complex its writers would never be able to make it run properly. (Full Story) WSJ

WFMI: Whole Foods Plans New Store Concept Whole Foods Market Inc. said Thursday that it was set to open its first "lifestyle" store in California in late October, with plans to sell clothing, housewares and hemp curtains — everything, it seems, except food. The new store concept from Austin, Texas-based Whole Foods, the leading U.S. natural and organic food retailer, will make its debut on Santa Monica Boulevard in West Hollywood. (Full Story) LA Times

IPG: Ad-Industry Secret Comes to Light Interpublic's Restatement Highlights a Pay Practice That Is Common Overseas Interpublic Group is about to shed light on one of Madison Avenue's better-kept secrets. As part of an effort to put its financial house in order, the New York advertising holding company is set to open the books on a little-known but common ad-industry practice overseas that benefits some ad firms at the expense of their clients. In exchange for large orders for ad space or commercial time, ad-agency media buyers placing the orders sometimes receive cash back from the television networks and publications getting that business, according to ad-industry people (Full Story) WSJ

Market Comments: The market opened under a bit of pressure, despite Rita being downgraded to a category 4 and oil trading back down below $66. Maybe there is still a lot of worry about what will transpire over the weekend. The early put/call ratio opened well below 1.0, so that's not helping.

Mortgage stocks are getting whacked on the earnings warning from NEW. Energy stocks are also lower across the board, signaling a potential top in the group. I know that short sellers have been active in this space, betting that Rita won't be as bad as feared and that oil will fall further.

Thursday, September 22, 2005

Turnaround Thursday

The market staged a nice turnaround today, after making a lower-low mid-day and then reversing higher into the close. I mentioned early on that I covered some of my ETF shorts in anticipation of a bounce. Better to be lucky than good, right?

The rally today was nice, although it did not come on an increase in volume. The put/call ratio ran well above 1.0 all day, so there was plenty of puts being purchased. I think this could result in some additional short covering before quarter-end.

Retail stocks led the market (+2.7%), with many of them putting in a large-range outside day (LROD). Housing stocks also were strong on the day, while energy stocks put in large downside reversals. This could signal a short-term top in the energy complex. When Rita got downgraded, oil closed down on the day, and profit taking kicked in, it was enough to cause the whole group to roll over. I know lots of investors were even placing new short bets in the group.

GOOG also made a new high today, before profit taking knocked it down by the close. The 10-year yield also finished slightly lower at 4.17%.

Twin Hurricanes

"True generosity is a duty as indispensibly necessary as those imposed on us by law." - Oliver Goldsmith

Morning News of Note:

YHOO: Yahoo Email Delivers That Desktop Feel Most Users Expect Web-based email programs, like Yahoo Mail, have long been inferior to email programs that take the form of standard applications installed on your computer. The Web offerings have been short on features, short on email storage and clumsy to use. Lately, however, that has begun to change. A number of major Web-mail providers have introduced versions that offer much more of the ease of use and power of desktop email programs like Microsoft Outlook. (Full Story) WSJ

SNE: Sony Corp. to Slash 10,000 Jobs Globally Sony Corp. said Thursday it will cut about 10,000 jobs, close 11 plants and shrink or terminate 15 unprofitable operations in an ambitious restructuring bid to revive its stumbling electronics business. The turnaround plan, which will reduce Sony's global work force by 6 percent, comes under the fresh leadership of Chief Executive Howard Stringer, a British-American dual citizen who was named in March as the first foreign head of the Japanese electronics and entertainment company. (Full Story) Washington Post

Mortgages: Heard on the Street... Mortgage Risk: a Hot Export What if Home Loans Blow Up? Much of the Pain's Been Sent Overseas When the American housing boom winds down, some of the first howls of pain are likely to be heard in Europe and Asia. That is because investment banks have been moving more of the risk of defaults on home mortgages to foreign investors, leaving less with U.S. lenders and investors. (Full Story) WSJ

DRS EASI: DRS to Acquire Engineered Support Defense contractor DRS Technologies Inc. is set to announce the $2 billion acquisition of Engineered Support Systems Inc., the companies said last night. As one of the year's biggest defense-industry deals, the transaction highlights how service and maintenance programs -- rather than tanks, planes and bullets -- are of increasing importance to the Pentagon and to the private contractors that serve those programs. (Full Story) WSJ

Market Comments: Close scrutiny of Hurrican Rita remains. CNBC has even put a storm tracker bug in the lower corner of its screen. The market opened lower this morning, but quickly found a bottom and is attempting to bouce currently. I covered some of my ETF shorts into the weakness. It remains to be seen if this bounce has legs to it.

Energy stocks are strong again this morning, and housing stocks are getting a huge bounce (+2.5%), likely due to the fact that the group was oversold and also has a ton of short interest. Financial stocks are weak, as well as biotechs. If the market stays firm, I would expect biotechs to rebound.

Wednesday, September 21, 2005

Poised for a sentiment-related bounce?

The market closed at its lows today. Volume expanded on the NYSE, setting up the S&P 500 for its 2nd consecutive distribution day. The volatility indexes (VXO) started to get a little spiky today, and the CBOE put/call ratio ran above 1.0 all day.

Rita just got upgraded to a Category 5 hurricane, so let's all hold our breath that the storm calms some or changes its course. Another hurricane is the last thing that region needs. Oil didn't make much headway today, closing around $66, so maybe the hurricane fears are adequately priced in.

More Nasty Action

Over the last 2 days, I have been stopped out of several positions, in addition to adding some ETF index shorts. This has served to significantly reduce my net long exposure to the market.

Yesterday was a large range downside day, with increasing volume. Today is looking like it could be another distribution day. Stocks are being sold hard, and as such the major indexes are breaking down further.

Sentiment indicators, like the put/call ratio, are spiking so there is some fear building. But I think the most likely pattern to play out from here is for the market to bounce at some point (maybe coinciding with quarter-end), and then come back down to test the lows. If bearish sentiment spikes into that re-test, and the market doesn't break down further, that scenario often offers a good buying opportunity.

This process can take weeks, so I don't want to get too far ahead of myself. But I'm just laying out my thought process at this juncture, fwiw.

Hurricane fears

"Sometimes the light is all shining on me. Other times I can barely see." - Jerry Garcia

Morning News of Note:

VZ: Getting Your MTV From the Phone Company Verizon Takes on Cable, Offering Cheaper TV Service; 140 Channels for $36.90 Firing the first volley in a long-anticipated war, Verizon Communications Inc. is about to become the first major phone company to begin offering consumers TV service. The service will be cheaper than cable TV, raising the prospect of the sort of price war that has brought down phone rates and, more recently, the cost of high-speed Internet access. (Full Story) WSJ

NOK: Nokia aims new phone at emerging markets Mobile phone giant Nokia said on Wednesday it was expanding its range with a new handset to sell cheaply in rapidly growing emerging markets. The Finnish group said the folding 2652 model would have an estimated retail price of 100 euros and be sold from next month in China, the Middle East, Africa and Europe. (Full Story) Washington Post

WMT: Less Holiday Retail Growth Is Forecast High Prices for Gasoline, Hurricane Katrina Effects, Job Market Play Roles With the back-to-school season over, and retailers turning attention to Christmas, two early forecasts predict weaker growth in holiday retail sales this year, as spending could be hurt by high gasoline prices, lingering effects of Hurricane Katrina and a lackluster job market. The National Retail Federation, a trade group based in Washington, plans to announce today that it expects retail sales for November and December to increase only 5%, the smallest growth rate since 2002. According to the association, which looks at retail sales excluding car dealers, gas stations and restaurants, holiday sales last year grew 6.7% to $414.7 billion, the largest increase since 1999. In 2003, those sales increased 5.2%. (Full Story) WSJ

FRO: Oil-Tanker Firms Defy Valuation Projections for Frontline Diverge as Analysts Find Consensus Slippery to Reach The future price of oil isn't the only perplexing piece of the petrochemical puzzle. Analysts are sharply divided over the value of tanker companies that transport black gold around the world. Consider Frontline Ltd. The world's largest tanker company by number of ships is based in Norway, incorporated in Bermuda and listed on the New York Stock Exchange and the Oslo Stock Exchange. (Full Story) WSJ

Market Comments: The market experienced a big selloff yesterday, and is under further pressure this morning. All eyes are focused on Hurrican Rita and whether or not it will wreak further havoc on the Gulf and its oil infrastructure. Already several experts have been on CNBC with gloomy forecasts for the prices of gas and what that will mean for consumers, in terms of the winter heating season. This has potential to keep sentiment regarding retailers (consumer spending) quite negative.

Retailers are being sold across the board, while energy stocks are the only group bucking the downtrend in any major way. The big Internet stocks are also hanging tough, and QCOM raised guidance this morning.

The put/call has been running fairly high, so a bounce could come, but I would use it to lighten up a little until the technical picture improves.

Tuesday, September 20, 2005

Oil eases back

"The trouble with our times is that the future is not what it used to be." - Paul Valery

Morning News of Note:

MSFT: Europe Considers New Charges Against Microsoft Almost 18 months after the European Commission ruled that Microsoft had abused its dominance in the software market, Europe's antitrust authority is considering opening new cases against the company, Neelie Kroes, the competition commissioner, said Monday. The commission ruling resulted in a fine of 497 million euros against Microsoft and an order to change the way it sells software in Europe. (Full Story) NY Times

AAPL: Apple to introduce new hardware at Apple Expo Apple Computer is expected to make at least one hardware-related product announcement during this week's Apple Expo, despite the company's decision to cancel its opening keynote presentation at the Paris show, AppleInsider has learned. Based on previous reports, the company appears ripe to update either its PowerBook G4 laptop line, its Power Mac G5 line, or both product lines (Full Story) Apple Insider

Housing Starts: U.S. Aug. Housing Starts May Fall to 2.025 Mln Pace Builders probably broke ground on homes at a rate of 2.025 million units a year in August, on pace to surpass the 26-year-high set in 2004, economists said before a U.S. government report today. Housing starts probably fell 0.8 percent from a 2.042 million annual rate in July, based on the median estimate of 55 economists surveyed by Bloomberg News. (Full Story) Bloomberg

Coal: BTU sees price of steam coal may stay at current levels around $60/ton and met coal $100/ton for 3yrs; CFO said co may buy 20%-49% stakes in Chinese coal mines and assets; said co sees 20yrs of cont growth in energy sector in China; Chiense demand driven by urbanization and industrialization

GOOG: Google to bid on AOL? - CNET News.com: According to the CNET, citing analyst, Google could try to bid for America Online to preempt a Microsoft (MSFT) takeover and protect the $380m in revs Google gets from its biggest partner. "We believe it is entirely possible that Google could consider making a bid for AOL as well," Lauren Rich Fine, of Merrill Lynch, wrote in a report on the implications of an AOL-Microsoft Network deal. "This would certainly protect Google's revs from AOL as well as enable Google to keep 100% of the search ad revs as well as gain a significant amount of content."

Market Comments: Taking its cue from oil prices, the market opened higher this morning as crude prices dropped back to around $66. All eyes will still be on Hurricane Rita to see if it hits the Gulf.

Goldmand Sachs (GS) and Circuit City (CC) both reported strong earnings this morning, with the former helping to lift the financial sector. Chip stocks are also bouncing back (+1.0%) in early trading. Don't expect any big moves until after the Fed meets today. The market will be closely scrutinizing the language the FOMC uses in its statement to guage if the Fed intends to pause in its rate hike cycle, and if it acknowledges Katriana-related weakness.

Monday, September 19, 2005

Downer Day

The SPX closed down a little more than 0.5%. Volume ran considerably lighter than Friday, which was quadruple witching day, but still qualified as an accumulation day.

Energy stocks led today from start to finish. Oil had its sharpest spike in nearly 10 years, rising more than $4 to $67. This spooked the equity market, which was already skittish ahead of the FOMC meeting tomorrow. The prospect for Hurricane Rita to cause more damage in the Gulf is growing worrisome.

After the close Leggett & Platt (LEG) reduced FY05 guidance quite a bit, citing higher costs for raw materials and energy. This could weigh on industrials tomorrow, like GE, HON, EMR, etc.

Retail stocks have been tremendously weak recently, despite the fact that Target (TGT) maintained their outlook for comp sales +4-6%. I am looking to start building up a couple retail longs on further weakness.

Sentiment Review

The market is still lower so far today, pressured by a combination of spiking oil (+$3.50 to $65.5) and skittishness ahead of the FOMC meeting. PIMCO's Bill Gross said he thinks there is a chance that the Fed pauses tomorrow. But I am not so sure.

So market sentiment today is cautious, and so are the indicators that I follow. Some of the advisor surveys ticked higher (i.e.- more bullish), but are still off peak levels reached earlier this year. And the short interest indicators are still elevated.

I am still focused on the large level of short interest in the market, despite the S&P 500 closing 8 points from a new high on Friday. While there could be some volatility around the FOMC meeting tomorrow, if the market breaks out to new highs this week or next, I would expect a flurry of short covering.

Monday Morning Pressure

"The only limit to our realization of tomorrow will be our doubts of today." - Franklin D. Roosevelt

Morning News of Note:

VZ DELL: Dell Will Install Verizon Wireless Web In Certain Laptops Verizon Wireless and Dell Inc. are expected to announce today a deal to put cellular technology that allows high-speed Internet access directly inside some of Dell's notebook computers, in an attempt to bring the service to the mass market. Verizon Wireless offers the service, called BroadbandAccess, in about half of the U.S. It allows customers to get on to the Internet wirelessly at speeds comparable with wired digital subscriber lines in most places in those markets where they can find a Verizon Wireless signal -- such as when riding in a car or train or sitting in a hotel room. (Full Story) WSJ

EMR: The Body Electric AFTER 43 CONSECUTIVE YEARS of earnings gains, Emerson Electric (ticker: EMR) hit a giant pothole in 2001, an indirect victim of the dot-com bubble's bursting. As its customers in the telecommunications and computer industries fell on hard times, the St. Louis-based industrial-equipment manufacturer struggled to make its numbers, as well. To chief executive David N. Farr, barely a year in the job, fell the unenviable task of telling Wall Street that no corks would pop in year 44, and that fiscal '01 earnings, including some ugly charges, would fall to $2.40 a share from the prior year's $3.30. (Full Story) BARRONS

Energy: OPEC President said members accepting plan to offer total capctiy; would increase output 2m bbl/day; said group plans to increase investments in oil refineries to help meet demand; Kuwait said they are in talks w/ US govt to build an oil refinery in US; Qatar anncd plans to triple its refinery capcity by 2010; Saudi officials said they may build second domestci refinery to serve export mkts and double size of refining venture in Port Author, TX

WMT: Wal-Mart Stores-WMT sees September SSS up 2%-4%

Market Comments: The market opened lower this morning, pressured by a rise in oil back to $65. Market sentiment is also likely cautious ahead of the FOMC meeting tomorrow, where it looks like the Fed will raise rates another 25 basis points.

Energy stocks are extremely strong this morning, with lots of breakouts to new highs. Hard to argue with the strength in that group. Chip stocks and financials are under the most pressure so far today.

Friday, September 16, 2005

Debating the LCD TV market

Yesterday, I commented on the article at Digitimes.com that said that LCD panel shipments were exceeding sell-through levels, and resulting in some inventory oversupply. This news hit the component makers (GNSS, TRID, etc.) hard yesterday.

Today, Roth Capital came out and defended the stocks, saying that they believe LCD TV demand is stronger than originally expected, and thus will offset any excess supply. Oppenheimer also said they thought the report was looking in the past, and they view it as a buying opportunity in the stocks that got hit.

The stocks mentioned are getting a bit of a bounce, but nothing huge. I think it's too close to call at this point, and would wait for the dust to settle more before trying to call a bottom.

Looking for a Friday bounce

"All of us must rid ourselves of the illusion that we can buy our way out of the problems of today by mortgaging the future." - Edward Heath

Morning News of Note:

MSFT TWX GOOG: Microsoft Is in Talks To Buy a Stake in AOL As Google Looms Demonstrating its growing concern about Google Inc., Microsoft Corp. has entered talks with Time Warner Inc. about taking a substantial stake in the media giant's America Online unit, said people familiar with the matter. The conversations have centered on whether AOL would switch to using Microsoft's search engine instead of Google's, these people said, as well as other areas of potential cooperation. AOL and Google shared about $380 million in revenue last year derived from displaying ads on AOL's search results. (Full Story) WSJ

MasterCard IPO: MasterCard Says IPO May Raise $2.45 Billion Credit-Card Giant Expects First-Quarter '06 Net Loss As a Result of Stock Offering MasterCard Inc., in its first disclosure of details about an initial public offering of stock, said it wants to raise as much as $2.45 billion in the IPO early next year. The credit-card giant also said it expects to report a first-quarter 2006 net loss -- and possibly even a full fiscal 2006 loss -- as a result of the offering. The Purchase, N.Y., company filed its first document with the Securities and Exchange Commission outlining the basics of its 61.5 million offering of Class A stock. (Full Story) WSJ

US Economy: NABE survey of 202 economists; 30% said high energy prices are top threat to US economy vs 11% six mo's ago and 6% a yr ago; 20% said terrorism is biggest treat, 13% said govt spending and deficits; 65% said monetary policy about right; 90% said Fed will cont to raise rates; 48% think rates should go oup; 75% see fiscal policy as too stimulative; 77% think budget deficit should be reduced, but 12% think it will be; few economists think there is a natl housing bubble; most think there are bubbles in local mkts; +75% said they would buy a home even at today's prices, 17% said they'd buy investment property

Video Games: MSFT anncd co to offer 15 games titles w/ Xbox 360 in US and EU // NTDOY unveiled new game controller as part of Nintendo Revolution game console; joystick/wand controller uses motion sensors to see players actual movement and position in space; about size and shape of a tv remote control // Capcom (Japan) CFO Tamio Oda said may cost 40% more to develop games for next gen gaming consoles

Market Comments: The market got a big bounce at the open, and even a very negative Michigan sentiment survey didn't knock it down. Some of this may be related to the fact that today is options expiration day, so let's see how it progresses.

I'll also be watching some of the recent fallen leaders that I have talked about, to see if they can bounce back also.

Thursday, September 15, 2005

Uneventful day

The market closed pretty much flat, with the SPX up a touch and the Nazz down a few, on volume that was in-line with yesterdays. One potential negative that I am seeing lots of stocks that had been leading the market starting to rollover.

But the S&P has held the key 1225 level so far, so I am still willing to give the market the benefit of the doubt, for the time being. I may very well have to cut my exposure in the near-term, but I don't want to jump the gun.

The ISE Sentiment Index traded below 100 for most of the day, even though it closed at 108. This in a bullish sign, from a contrarian perspective. The last time it closed below 100 was October 2004.

Market Comments: The market is still bouncing around the flat line. GOOG has absorbed its secondary well, and is already back up to $305. PSYS had a secondary also, and is up nearly $3 today. Anything related to the flat panel market is getting hit today on worries about oversupply in that industry, which historically has killed the margins at the component makers.

Are you psyched for the Fusion razor?

"Very specific and personal misfortune awaits those who presume to believe that the future is revealed to them." - John Kenneth Galbraith

Morning News of Note:

BBBY LIN: BED, BATH MAY BUY LINENS & THINGS - NO SHEET! Bed, Bath & Beyond is considering an acquisition of rival Linens 'N Things, which has recently hired an investment bank to advise it on a possible sale of the company, industry sources said. Should Bed, Bath & Beyond decide to pursue a deal — and it remains unclear whether it will — the company would have an opportunity to consolidate the home goods market in the face of increasing competition from rivals like Wal-Mart, Target and a host of department stores, these people said. (Full Story) NY Post

TWX MSFT: AOL'S TIME IS UP In a deal that would unite two of America's corporate giants as partners in the Internet business, Time Warner is in advanced discussions to sell a stake in America Online to Microsoft, The Post has learned. According to two sources familiar with the matter, Time Warner is in talks with Microsoft about selling the stake in AOL and then combining it with Microsoft's Web unit MSN. (Full Story) NY Post

PG G: Gillette's Smooth Bet: Men Will Pay More For Five-Blade Razor Days before Procter & Gamble Co. reached an agreement to purchase Gillette Co. for $57 billion, P&G Chief Executive A.G. Lafley had a special request. He wouldn't put forward a final bid until he had tried Gillette's new top-secret razor, whose success would determine Gillette's profits for years to come. So one day in late January, Mr. Lafley and his chief financial officer, Clayt Daley, walked out of Gillette CEO Jim Kilts' office in Rye, N.Y., clutching two razors to take home and try out the next morning. (Full Story) WSJ

Energy: OPEC Secretary Gen said OPEC to consider 500k bbl/day ceiling hike at meeting Monday; expects group to let global inventories grow; said Saudi offer for more crude had no takers; sees minor tweaks to OPEC call on and demand due to oil // Saudi Crown Prince said he's worried about oil prices; reit Saudi Arabia ready to meet any oil supply shortage

Market Comments: The market opened up slightly this morning, on the heels of a benign inflation report (if you believe the govt. numbers). Energy stocks are leading so far, while chip stocks and some tech are selling off. Many of these stocks have had big runs, so I can't begrudge a little profit taking. And...it's still early.

Wednesday, September 14, 2005

No Upside Today

Another weak close, this time with the Nazz leading on the downside (-1.0%). I think the GOOG secondary may have weighed on things. Also, the spike in oil coincided fairly well with the late-day selling in the equity markets.

But volume ran lower than yesterday's levels, so it was not another distribution day. And the SPX was able to hold the key 1225 level. So I am not pulling in my horns yet. I still think there is more upside to come. Maybe it will take a few more days; maybe it won't surface until after options expiration; but it will come. At least...that's how I see it.

Market Comments: The market is pretty much flat-lined, with the SPX up slightly and the Nazz down slightly. I think stocks will trade modestly higher into the close. GOOG prices its secondary tonight also.

Bidu 'bye-bye'

"The future is like heaven-- everyone exalts it, but no one wants to go there now." - James Baldwin

Morning News of Note:

GOOG Secondary: Google to Raise $4.41 Billion in Secondary Stock Sale Google Inc., the most-used Internet search engine, may raise $4.41 billion today in its first stock sale since going public, the largest such offering in more than 10 years. The sale will allow Google to bolster its cash reserves to compete with Yahoo! Inc. and Microsoft Corp. for Internet users and advertisers. Google last month unveiled software to make phone calls over the Internet and said it may make acquisitions. (Full Story) Bloomberg

FNSR CIEN: Fiber Optics May Be Back From the Grave AFTER ONE OF THE GREATEST DISAPPEARING ACTS in the history of modern equity markets, fiber optics stocks may finally be on the mend. In the dot-com implosion that melted the likes of Lucent Technologies from a $251-billion giant in 1999 to a $14-billion pip-squeak today, the market for equipment to send data at the fastest speeds has shriveled to a third its former size. Why? As WorldCom and other telcos went bankrupt, buyers of the stuff disappeared. (Full Story) BARRONS

GE: General Electric-GE to sell parts of industrial businesses-FT: GE is initiating a new strategy to unlock shareholder value by restructuring or selling parts of its industrial businesses. The review comes in response to poor performance of the company's stock over the last twelve months. ""We need to continually look at whether we have our capital employed well or whether there are businesses that would be better off elsewhere or more valuable to someone else." said GE vice-chairman John Rice.

US Economy: FOMC will raise interest rates at meeting on Sept 20 and discuss changees to wording of policy statement; Fed is reasonably relaxed about Katrina impact on production, consumer spending and employment; FOMC to discuss whether to refer to its current policy as accomodation and dropping measured phrase -- FT

Market Comments: Fairly flat open this morning; retail stocks are down a bit, while the brokers looks strong. Oil is up slightly ($63.25), and the 10-year Treasury yield is 4.13%.

Chinese-Internet company Baidu.com (BIDU) got downgraded today at Goldman Sachs and Piper. The analyst at Goldman said the stock is probably worth $27-45. That doesn't go over to well on a $115 stock, so it got whacked for 20% this am. Ouch.

Tuesday, September 13, 2005

Nasty Close

The market was recouping its losses, with the SPX narrowing to a 1 point decline with 90 minutes of trading left. But then someone pulled the plug (I didn't catch who it was), and the markets cascaded to close at their lows.

There is always a nasty day during expiration week, and hopefully it was today. Volume ran higher then yesterday, so that qualifies as distribution, but the indexes are still above near-term support levels.

The market is currently in overbought territory also, so a little consolidation is healthy and could help to extend the rally. Also, lots of market leaders bucked the weakness and finished in positive territory. I am maintaining my net long exposure (+85%).

Market Comments: The market fell considerably mid-morning, but is attempting to bounce from those levels (SPX 1231). I see a nice handful of stocks bucking the trend this morning, and trading nicely higher. Many of these are tech stocks, and also some of the high short interest plays I mentioned yesterday. Today's close is still a coin toss, but I still expect more short covering this week.

Could a weak open end with a strong close?

"He is a good man whom fortune makes better." - Thomas Fuller

Morning News of Note:

AMZN CSTR: Amazon Craves Your Spare Change To Attract New Customers, Retailer Offers Gift Cards At Coin-Tally Machines Amazon is turning to loose change to woo more shoppers. Amazon.com Inc. will introduce a service today that lets consumers use Coinstar Inc.'s coin-counting machines to convert their coin hoards into Amazon gift certificates, said officials at the companies. The coin program may attract new users to Amazon and Coinstar. Some consumers have resisted Coinstar's machines -- familiar fixtures in many grocery stores -- because Coinstar charges an 8.9% commission in the U.S. to convert coins into bills. And Amazon's clientele has largely been limited to people with credit cards. (Full Story) WSJ

TM: Toyota hopes to cut hybrid premium in half The president of Toyota Motor says he has told his engineering chief to find a way to cut in half the price difference between fuel-efficient gas-electric hybrids and similar gasoline models. Katsuaki Watanabe also said here Monday that Toyota will sell 1 million hybrid vehicles a year worldwide by early next decade, up from a planned 300,000 this year, about 60% in the USA. And he said Toyota is developing fuel-efficient diesel-power vehicles for the U.S. market but "not in the short term." (Full Story) USA Today

CMCSK VIA: POWER COMBO Viacom and cable giant Comcast plan to unveil a wide-ranging joint venture that will create several new cable networks, The Post has learned. The venture, which will be jointly owned by Comcast and Viacom's MTV Networks, will include several lifestyle channels — on topics such as cars and wealth — as well as video-on-demand and e-commerce, according to a source close to Comcast. (Full Story) NY Post

Market Comments: The market has opened lower this morning, despite a better-than-expected PPI. BBY reported weak results, and this is weighing on the retail sector (-1.2%). Chip stocks are trading higher in the early going.

You know that I like a market that opens weak, and builds strength throughout the day. I don't know if this will be one of those days or not, but it wouldn't surprise me. I expect new highs in the SPX soon, although options expiration this week could mean we get one big down day, as often happens. I'm staying the course for now.

Monday, September 12, 2005

Constructive Day

I think today was fairly constructive, after Friday's strong thrust. I would not be surprised to see the SPX break to new highs tomorrow. I added a couple positions in strong stocks with large short interest positions.

They were:

FORD (38% of float)

PARL (50%)

MSTR (23%)

HANS (65%)

CERN (40%)

Note: these short interest figures are as of August (from Reuters). September figures should be out soon.

Request for info.

Hard to find much info. out there on Forward Industries (FORD). I am eyeing this stocks as a good long candidate, with strong growth and huge short interest. But I can't find any earnings estimates or analyst reports out there.

10 Interesting Charts

Looking for new highs

"If a fool and his money are soon parted, why are there so many rich fools?" - Anonymous

Morning News of Note:

EBAY: EBay Agrees to Buy Skype For $2.6 Billion in Cash, Stock EBay Inc. agreed to acquire Internet-calling startup Skype International SA for roughly $2.6 billion in cash and stock, posing a new threat to phone companies and expanding the reach of the online-auction company. Launched just two years ago, Skype allows its subscribers to talk to each other over personal computers for free, while the company also allows cut-rate, pre-paid voice calls to be made from PCs to regular telephones or cellphones. (Full Story) WSJ

Rebuilding New Orleans: Heard on the Street... Firms That May Help Rebuild New Orleans Draw Growing Focus The reconstruction of New Orleans hasn't yet begun, but smart investors already are putting their money on companies that might profit by helping the city rebuild. Some of these stocks now look pricey, but other companies that could see significant profit remain attractive, some investors argue. In the aftermath of Hurricane Katrina, investors have scooped up shares of companies including: engineering and construction concern Shaw Group Inc.; copper producer Phelps Dodge Corp.; Halliburton Co., which provides energy and construction services; and heavy-equipment maker Caterpillar Inc. -- sending these stocks up between 5% and 40% in the past two weeks (Full Story) WSJ

STX SNDK: Memory Games WITH A WAVE OF HIS HAND last week, Steve Jobs confirmed the rumors: Flash memory is clobbering the hard disk drive. At a San Francisco press event on Wednesday, the Apple Computer chief showed off the company's new digital music player, the iPod nano. The nano is startlingly thin and lightweight. That's because it stores music on flash memory chips, instead of the one-inch hard drive used in the predecessor product, the iPod Mini. (Full Story) BARRONS

DELL: Rebooting Dell DELL HAS LONG BEEN one of America's most innovative companies. Like Southwest Airlines in aviation and Wal-Mart in retailing, it has established a business model that gives it a price edge and profit performance others can't begin to match. While rival personal-computer makers have reported losses, laid off workers and even, in the case of IBM, quit the business altogether, the Texas firm that Michael Dell famously founded in his university dorm continues to deliver, exceeding earnings estimates for each and every one of the past 18 quarters. (Full Story) BARRONS

Oracle agreed to buy Siebel Systems in a deal valued at about $5.85 billion.

Market Comments: The market opens down slightly this morning. I have to admit, I don't really get why eBay wants to buy Skype. GOOG is extending its breakout, and recent healthcare leaders are up this am as well. I expect the market to break out to new highs this week.

Sunday, September 11, 2005

Weekly Sentiment Review

I am still positioned materially net long going into this week. I think the market's are poised to break out at a time when many are ill-positioned for it. The SPY made a new high on Friday, as did the MDY (mid-cap index). And lots of growth stocks are breaking out to new highs, as well as the unstoppable energy complex.

I think this is another "unwelcomed" rally, as my colleague (at TheStreet.com) Bob Marcin coined it earlier this year. I can't tell you how many hedgies out there love to play the seasonality in the market. Since the September-October time frame is often one during which the market experiences a correction, they have been pressing their short bets.

So short interest levels remain extremely elevated, and options expiration this week could exacerbate those positions. If the market breaks to new highs, I would expect to see short-covering kick in and add fuel to the fire.

Here is where some of the indicators I follow stand:

The Specialist Short Ratio is still near multi-decade lows (0.16)

The Rydex Nova/Ursa ratio is at yearly lows (0.18)

The 10-day put/call ratio is still elevated at 0.96

The bull/bear spread in the AAII survey is +10 (42% bulls, 32% bears); well off the +44 level reached back in mid-July

I have a long list of buy candidates that I am weeding through. I'll throw up some of the charts tomorrow.

Friday, September 09, 2005

"Let no feeling of discouragement prey upon you, and in the end you're sure to succeed." - Abraham Lincoln

Morning News of Note:

Refiners: Heard on the Street... Refiners' Shares Get Second Wind From Storm Not two weeks ago, shares of the nation's refiners looked poised for a breather after a long and profitable run. Then came Hurricane Katrina. The storm plowed through a key Gulf Coast refining center, cutting into supplies of gasoline and heating oil as demand for such products remained strong. Shares of San Antonio-based Valero Energy Corp., the nation's largest refiner, have jumped 25% from before the storm to $111.47 yesterday as the flood waters that wreaked havoc from Louisiana to Mississippi also pushed refining margins into the stratosphere (Full Story) WSJ

CHK: Chesapeake Energy-CHK analysts still positive on stock amid boom-BusinessWeek: Even after the jump of CHK shares from $18 in May to over $33 now, analysts such as Richard Wolfe of Zacks Investment Research are still positive on the stock, citing the company's "vast acreage, growing fleet of drilling rigs, dominant position in the U.S. mid-Continent and lack of Gulf operations" as reasons to be positive.

INTC Mid-Q Update: Co notes operating results for the qtr to date consistent with outlook it gave in July. Co notes it has narrowed gross margin percentage with the expectation that the final results is likely to be slightly above 60%. Co notes its outlook is a little better than seasonal. During Q&A, co notes it is trying to communicate no real surprise in the revenue line. Co notes its mix is pretty much as the co expected in the beginning of the quarter. Co notes it does not see an inventory build right now. Co notes all different product lines are performing as expected. Demand inside this qtr has been reasonable as the co expected.

Market Comments: The market is higher after the open this morning, with housing and energy stocks leading the way. Chip stocks are in the red, as INTC's guidance was not bullish enough to lift the stock. But these stocks have all been doing well, so a pullback should be healthy.

Man, I am really feeling some pain in CHTT. If you have any insight on this stock, please post a comment. Other recent breakouts continue to fair well.

Thursday, September 08, 2005

Market pauses, but still plenty of good looking stocks

Here is a sample of some charts that look good. I really don't like the settings they use for these charts, but it's a simple and quick snapshot of 10 charts on one page. If you like any of them, I would recommend pulling them up on your own personal chart preferences.

Market Comments: The indexes pulled back today, but volume was only moderate, so I am not overly concerned. TXN raised guidance after the close, which should help chip stocks again tomorrow. INTC's guidance was pretty much in-line. I am staying 80-90% net long.

posted by J. Kahn @ 1:28 PM0 commentsMarket pauses, but still plenty of good looking stocks

Market Comments: The Nazz has erased its early losses and it currently in positive territory. The SPX is off its early lows, and trying to claw its way back. I think a little more late-day short covering could do the trick.

Outside of chip stocks, which are all up nicely, its pretty much a mixed group of stocks that are up. I see a few retailers up, several energy names, a few healthcare plays, and lots of tech stocks. SYMC is back above its 50-day moving average, forming a constructive basing pattern.

"Our greatest glory consists not in never failing, but in rising every time we fall." - Oliver Goldsmith

Morning News of Note:

AAPL: IPod's Latest Siblings The Nano Is Small, Slender And Surprisingly Powerful; Color Photos, Flash Memory Grab a standard American business card. Now, get a pair of scissors and trim the long side of the card by 20%. That's all the space you need to hold over 1,000 songs, plus audio books, podcasts and photos if you buy Apple Computer's newest iPod model, the gorgeous and sleek iPod nano. This latest iPod was publicly revealed yesterday at a razzle-dazzle marketing event orchestrated by Apple CEO Steve Jobs. But I have been testing a nano for the past few days, and I am smitten. It's not only beautiful and incredibly thin, but I found it exceeds Apple's performance claims. (Full Story) WSJ

GRMN: Garmin to provide GPS applications for mobile phone users: A unit of GRMN announced that Garmin Mobile -- a new suite of applications delivering maps, directions, and turn-by-turn navigation -- will be offered by Sprint Nextel on select handsets. Garmin Mobile represents GRMN's first product offering that targets the emerging wireless handset applications and location-based services market.

Market Comments: The market is slightly lower this morning. HOV reported weak earnings, and is pulling the housing stocks down (-2.9%). I think some of these stocks could be candidates for a bounce in the near future. SHLD is also down sharply on disappointing results. I sold this stock last month after a great run, but this could be another bounce candidate at some point. (I'd rather wait to see a nice basing pattern build than attempt to pick the bottom)

Chip stocks are up so far, and big-daddy INTC will give its mid-quarter update after the close. GOOG is adding to yesterday's gains, while EBAY is down on the SKYPE buyout news. Energy stocks are also higher across the board. I took some of my index hedges off yesterday, and am now materially net long (80%+).

Wednesday, September 07, 2005

Solid action

I thought there was a good chance that late-day short covering would surface, and that's exactly what happened. I believe there are a ton of trapped shorts in this market, and they will not stick around to withstand the pain if this market continues to move higher.

Healthcare stocks stood out again today, and lots of good breakouts can be found among them. Retail stocks (+1.0%) and housing stocks (+0.8%) also fared well, while chip stocks lagged (-0.3%).

Former SOTD Panera (PNRA) rallied strongly today on nice volume, but hasn't broken above its downtrend just yet. I think it will soon. Google (GOOG) also had a solid day, up nearly $8 and moving back above its overhead 50-day moving average. As long as the market stays strong, GOOG could have a lot of running room ahead of it.

Market Pause?

"He that is good for making excuses, is seldom good for anything else." - Benjamin Franklin

Morning News of Note:

Steel: Steel Prices Could Rise Further As Flooding Stalls Key Materials The price of steel used to make cars and industrial equipment is expected to rise by as much as 20% in coming months because New Orleans flooding has limited the supply and distribution of raw materials such as liquid hydrogen and scrap steel. The increase would be in addition to roughly 20% price increases by steelmakers including Pittsburgh-based U.S. Steel Corp. and Nucor Corp., of Charlotte, N.C., that became effective on Sept. 1 for shipments of key products like hot-rolled coil. (Full Story) WSJ

TIVO: TiVo Slashes Recorder Price In Half, to $50 Latest Cut Is Made to Fend Off Competition From Cable Giants; Comparing the Monthly Costs Faced with growing competition from powerful rivals with cheaper products, TiVo Inc. sharply cut the prices on its digital video recorders. The Alviso, Calif., company yesterday dropped to $50 from $100, after rebates, the price of its entry-level digital video recorder. TiVo is virtually synonymous with DVRs, as they are also called, having pioneered the devices that record television shows onto hard disks, allowing consumers to skip commercials and halt live broadcasts. (Full Story) WSJ

PMCS: PMC-Sierra Eyes a New Era PMC-SIERRA IS TO SEMICONDUCTORS what Donna Karan is to fashion: It stands for sophisticated design at high, high prices. And just as fashionistas might be horrified if Karan branched out into cheap baubles, investors have run for the exits as PMC moves to sell cheaper chips in new markets. PMC's shares have fallen 25% this year and its valuation is a hair above the industry's average even though its growth rates are far higher than those of its peers. (Full Story) BARRONS

Interest Rates: U.S. Lawmakers Urge Fed to Hold Interest Rates Steady Sept. 20 U.S. lawmakers from both parties are urging the Federal Reserve to forgo raising interest rates at its Sept. 20 meeting to help consumers and businesses recover from the destruction of Hurricane Katrina. ``The economy's doing well,'' said Senator Orrin Hatch, a Utah Republican. ``There's no reason to raise interest rates at this point.'' (Full Story) Bloomberg

Market Comments: The market opens slightly lower this morning. ALTR gave weak guidance last night, and that has the semis trading down. But INTC gives its mid-quarter update tomorrow, and this should be more of a market moving event.

The healthcare breakouts I mentioned yesterday continue to rise. That sector is one of the early standouts so far today. But it's still early, so I would not be surprised to see further late day short covering into the close.

Tuesday, September 06, 2005

Solid confirmation day

I view today as a solid confirmation day to last week's rally. The market put in a nice upside reversal on 8/29, then logged a strong accumulation day on Aug. 31. Today is the fourth day from that initial rally attempt, and right on cue the market gives us a solid confirmation day.

I think many are quick to dismiss today's action as not too significant. They cite things like moderate volume, short-term relief in oil prices, etc. But I think today could be more significant. Plenty of market leaders are breaking out strongly. Check out Apple (AAPL), Broadcom (BRCM), Quality Systems (QSII), Cerner (CERN), and Psychiatric Solutions (PSYS) just to name a few. Those are big moves.

Moreover, one of the things that caught my eye over the weekend was that the specialist short ratio was back down to 35-year lows (0.15), while the Rydex Ursa/Nova ratio was also back down to its yearly lows. So there are considerable short bets on this market, which could continue to put a bid underneath.

Market Comments: Stocks have held on to their early gains, and even added to them a little. Lots of stocks that have been market leaders are up nicely (except GOOG, which continues to lag). AAPL is up over $2, and plenty of healthcare stocks are breaking out (CERN, PSYS, etc).

Back in the Saddle

"Many of life's failures are people who did not realize how close they were to success when they gave up." - Thomas Edison

Morning News of Note:

Small Cap Stocks: Heard on the Street... As They Play Catch-Up, Smaller Stocks May Outperform Their Bigger Brethren While the major stock indexes have been muddling along for months, below the market's surface, shares of small and midsize companies continue to climb. Some experts warn that things are getting overheated for shares of these kinds of companies. But as long as the economy -- now experiencing the aftereffects of Hurricane Katrina -- continues to show strength, these stocks could outperform. (Full Story) WSJ

GOOG MSFT: Microsoft, Google Dispute Heats Up Tones of Rivalry Are Heard In Battle Over the Defection Of a Worker to Search Engine Microsoft Corp. and Google Inc. meet in a Seattle courtroom today to debate a decision in an increasingly heated employment battle over Google's hiring of a former Microsoft vice president. Microsoft plans to argue that it should be granted a preliminary restraining order barring the former vice president, Kai-fu Lee, from performing work at Google that would compete with his previous work at Microsoft. Google opposes the order. (Full Story) WSJ

WMT: Wal-Mart Cancels Annual Meeting On Holiday Plans Wal-Mart Stores Inc., battling lackluster sales and concern about rising energy prices, faces another potential business hurdle as it was forced to cancel its annual managers meeting for holiday planning in Dallas because the city's convention center is being used as a shelter for Hurricane Katrina evacuees from New Orleans. The meeting, which had been scheduled for next week, brings together managers from the Bentonville, Ark., retailer's 3,200 Wal-Mart stores for strategy sessions and a look at the featured merchandise and marketing plans for the important holiday selling season (Full Story) WSJ

Market Comments: The market is rallying strongly at the open. Oil prices are down as increasing supply in the form of relief from other parts of the globe are heading toward the gulf. Wall St. is back from their summer vacations, and the fall trading season is in full tilt.

Retail stocks are up nicely (+1.2%), likely on a bounce after last week's schmeissing, as are biotechs (+2.1%). Energy stocks are lower, likely on profit taking after last week's runup.

It's still early, so it remains to be seen if this early rally can maintain strength into the close. But I wouldn't be surprised to see additional short covering to keep a bid under the market.

About Me

Jordan Kahn, CFA is the Chief Investment Officer of KAM Advisors, in Beverly Hills, CA.
He is a frequent market commentator for numerous investment publications, and has appeared on CNBC and KNBC-Los Angeles. He is a regular columnist for RealMoney.com and has also been featured in TheStreet.com, Street Insight, Technology Investor, and Barron’s.